45. The practice of obtaining critical information from within a company and then using that information for one’s
own
fmancial gain is
a.
arbitrage.
b. programmed trading.
c. insider trading.
d. hedging.
46. The Securities and Exchange Commission’s Regulation FD is desigued to
a. streamline the trading
process.
b. change stock trading prices to the decimal
system.
c. allow small investors to benefit from insider trading.
d. limit the common practice of selective disclosure.
47. Companies that elected to provide meaningful information to shareholders and securities professionals without also
informing small investors were practicing
a. insider trading.
b. programmed trading.
c. selective
disclosure.
d. stair-stepping.
48. Personal liability for a corporate board member means
that
a. directors have a legal obligation to pay all debts of the corporation.
b. directors have a legal obligation to pay all debts of the corporation if the company
cannot.
c. directors may be sued for breach of fiduciary
duty.
d. directors have a personal responsibility to the
shareholders.
49. The primary purpose of the Sarbanes-Oxley Act is
to
a. provide rules regulating the relationship between CEOs and
boards.
b. limit the power of corporate
boards.
c. restrict the flow of corporate money into politics.
d. provide better protection for investors in public companies by improving the financial reporting of
those
companies.
50. Sarbanes-Oxley attempts to ensure auditor independence is
by
a. limiting the nonauditing services an auditor can provide.
b. requiring auditing fmns to rotate the auditors who work with a specific client.
c. making it unlawful for accounting fmns to provide auditing services where conflicts of interest exist.
d. all of these.
51. Which of the
following
is not on the ranking of red flags that signal board problems?
a. Company has to restate earnings
b. Poor employee morale
c. Poor customer satisfaction track record
d. Stock price increases
52. A new trend in board recruiting focuses more on
a.
networking
skills.
b. experience than title.
c. business school professors.
d. foreign investors.
53. The board committee
responsible
for assessing the adequacy of internal control systems and the integrity
offmancial
statements is the
a. fmance committee.
b.
monetary
po!icy committee.
c. arbitrage committee.
d. audit committee.
54. The principal responsibilities of the audit committee are to
a. interview auditing fmns to do the company audit.
b. negotiate with the Internal Revenue Service in the event of a tax
audit.
c. ensure that published fmancial statements are not
misleading.
d. hire the Chief Financial Officer (CFO) and monitor that person’s
work.
55. Which of the following is a step to board
repair?
a. Seeking outside help in identifying potential risks
b. Increasing executive
compensation
c. Using dependent compensation consultants
d. Reducing involvement in corporate
strategy
56. The board committee that has the primary responsibility of ensuring that competent, objective directors are
selected
is
the
a. qualifications committee.
b. personnel standards
committee.
c. compensation committee.
d. nominating committee.
57. The board’s compensation committee has responsibility
for
a. setting directors’ pay
scales.
b. making sure that all employees are paid a fair
wage.
c. evaluating executive performance and recommending terms and conditions of
employment.
d. determining what bonuses should be paid and to
whom.
58. The board committee that is responsible for responding to social issues is
the
a. ethics committee.
b. public policy committee.
c. community interface
committee.
d. rapid response
committee.
59. Boards are now being tougher on CEOs for all of the following reasons
except
a. increasing diversity on
boards.
b. competitive economic conditions.
c. rising vigilance of outside directors.
d. increasing power
oflarge
institutional investors.
60. Shareholder activism
a. was started by the counter culture during the
1960s.
b. has been around for more than sixty
years.
c. is lead by the Roman Catholic church.
d. relies on large institutional investors to introduce most of the shareholder resolutions.
61. One of the main ways in which shareholder activists communicate their concerns to management is
through
a. the
Internet.
b. blogging.
c. advertisements in mass media
outlets.
d. shareholder resolutions.
62. The fact that company information should be made at regular and frequent intervals and should contain
information
that might affect the investment decisions of shareholders is contained in the concept
of
a. full disclosure.
b.
transparency.
c. open door reporting.
d. both full disclosure and
transparency.
63. Describe how the separation of ownership and control carne
about.
64. What is the primary problem inherent in management control of the
finn?
65. What is the difference between an owner and an
investor?
66. Why are inside directors seen as problematic in corporate
governance?
67. What are the two main issues associated with CEO
pay?
68. Why is the generous nature of CEO retirement packages particularly frustrating to the
public?
69. Why is insider trading illegal and considered unethical? Isn’t that exactly what financial markets are supposed to
do—
reward those who make good
decisions?
70. List the reasons that good candidates for corporate board positions are hard to
fmd.
71. Why are church groups particularly visible in the shareholder activist
movement?
72. Summarize the responsibilities that corporations should have toward their
shareholders.
73. Forecast how society would change if business did lose its macro level
oflegitimacy.
74. The textbook mentions that business as a whole rarely, if ever, addresses the issue
oflegitimacy
at the macro
level.
Imagine that the Chamber of Commerce approaches you to design a campaign to assure its legitimacy with
the
public. What kinds of issues would you
address?
75. Should directors be held personally liable in cases of corporate
misconduct?
76. Church groups are key members in the shareholder activist movement. One way that they gain access to
corporate
executives is by purchasing a small amount of stock and holding it a certain length of time (state laws usually
dictate
how much they need to buy and how long they need to hold it), which then allows them to introduce
shareholder
resolutions at stockholder meetings. Should small investors be able to wield influence like this, which arguably goes
beyond their fmancial stake in the
finn?
77. Discuss the role of shareholder democracy in corporate
governance.
78. Explain Harry Markopolos’ opinion regarding the
SEC.